Two of Europe's biggest banks, Dresdner Bank and Banque Nationale de Paris, are in talks about forging closer ties - including the possibility of a full merger. The move is the first sign that the ripple effect from France's bruising banking battle is spreading across the euro zone.

It is understood that Mr Michel Pebereau, BNP chairman, and Mr Bernhard Walter, Dresdner chairman, met this week to discuss the prospects for closer co-operation. However, a potential merger is believed to be some way off. Both banks own 1 per cent of each other's shares and co-operate in commercial banking. The move marks a resumption of contacts between Germany's third-largest listed bank and France's biggest, broken off months ago when BNP became embroiled in a battle for rivals Paribas and Societe Generale.